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Use the following information to answer Jim’s Production is planning on acquiring a competitive firm with...

Use the following information to answer Jim’s Production is planning on acquiring a competitive firm with a view to change production technologies. The two firm technologies produce the same output but with different cost functions. Jim’s Production technology has a cost function = 1000 + 0.10Q whereas the competitor‘s cost function = 500 + 0.15Q. What is the total cost at the break-even quantity calculated above? a. $750 b. $1000 c. $1500 d. $2000

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Answer #1

ANSWER:

In order to find the break even quantity , we will have to equate the cost function of jim and his competitor as equal.

1000 + 0.10q = 500 + 0.15 q

1000 - 500 = 0.15 q - 0.1 q

500 = 0.05 q

q = 500 / 0.05 = 10,000

for finding the total cost of break even quantity we will have to put the no of quantity(10,000) into any cost function.

jim cost function = 1000 + 0.1 q

jim cost function = 1000 + 0.1 * 10,000 = 1000 + 1000 = 2000

therefore the correct option is d.

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